May Coffee Breaks to February Highs

COFFEE

May Coffee managed to push through last week’s high early Friday and trade to its highest level since the February 13 peak. Brazil’s coffee production is expected to improve this year, but there have been reports this week that Brazilian farmers are reluctant to sell at current levels and are holding out for higher prices. The Brazilian real is near its highest level in almost two years, which reduces the incentive to sell for export. The closure of the Strait of Hormuz is tying up global shipping, which may also be causing sellers to hold back. Higher fertilizer prices due to the closure of the Strait could also reduced output. World Weather Inc. said periodic showers and thunderstorms intermixed with periods of sunshine and seasonable temperatures in Brazilian coffee areas will prove to be ideal for maintaining favorable production potentials.

COCOA

May Cocoa was lower early Friday but inside the narrow consolidation range of the past week in a half. The market found support earlier this month when Ivory Coast and Ghana lowered their official prices paid to farmers as that suggested the recently harvested cocoa would finally get sold. This appeared to be the culmination of pressure that  has been put on the market due to the backup of supply. However, with sources at some of Ghana’s licensed cocoa buyers (LBCs) telling Reuters that they lack the funds to buy beans from farmers despite the cut in the fixed price, there could be renewed pressure on the government regulator, Cocobod, to lower the official price again. Farmers will resist, and this could lead to a drawn-out debate over the matter. The current official price is 41,392 cedis ($3,797) per metric ton versus the May futures around $3,250. World Weather Inc. expects sufficient rain in West Africa during the next week to maintain a favorable environment, but they added that temperatures will remain warm and some cooling and greater rain would be welcome. Soaring fertilizer prices due to the war in Iran could cause problems with global production.

SUGAR

May Sugar extended this week’s rally early Friday to reach its highest level since October 13. The market has seen a boost this week off soaring global energy prices on ideas this will increase the incentive for cane crushers in Brazil to focus more of their activity on ethanol production at the expense of sugar. Another supportive factor is higher fertilizer prices, which like petroleum and natural gas, are seeing supply disrupted due to the near-closure of the Strait of Hormuz. Several European Nations and Japan have issued a statement saying they were ready to join “appropriate efforts” to ensure safe passage through the Strait, but it was short on details. In the meantime, Israel and Iran continued their attacks on each other overnight, but at this writing they appeared to avoid targeting energy infrastructure.

COTTON

May Cotton was lower early Friday following a modest selloff on Thursday that saw the market five back some of its gains from earlier this week. Supportive fundamentals include dry conditions in the US just as planting is getting underway and high fertilizer prices as a result of the Iran war. The fact that the funds have been holding a large net short position left the market vulnerable to a short covering rally. Yesterday’s weekly US export sales report showed an improvement in US cotton sales, but the decline in shipments from the previous week may have been a disappointment after the strong number the previous week.

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